The dollar gained on Monday as an influential U.S. Federal Reserve official expressed confidence that rising wages would help revive domestic inflation, which has shown signs of softening recently.
The yen fell to two-week lows against the greenback and the euro after officials of the Bank of Japan at a meeting on Friday downplayed the likelihood that the bank would begin to roll back emergency stimulus to support the economy.
Remarks by New York Fed President William Dudley on Monday that tightening in the labor market should help drive up inflation helped offset concerns by some investors that stubbornly low inflation would not allow policy-makers to raise rates further the rest of this year.
"The Fed doesn't seem to be too concerned about the recent pullback in the inflation data. They are committed to policy normalization," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
Last week, the Fed, as expected, raised key overnight borrowing costs by a quarter point and left the door open for another rate increase later this year. It also provided details on its plan to reduce its bond purchases in a bid to shrink its $4.5 trillion balance sheet.
"Inflation is a little lower than what we would like, but we think that if the labor market continues to tighten, wages will gradually pick up, and with that inflation will gradually get back to 2 percent," Dudley told a local business group in Plattsburg, New York.
Traders raised their outlook on a rate hike by the Fed's Dec. 12-13 policy meeting to 47 percent from 41 percent late on Friday, CME Group's FedWatch tool showed.
The dollar index, which gauges the dollar against six other currencies, was up 0.4 percent at 97.55.
The euro was down 0.46 percent versus the greenback, to $1.1146, while against the yen the dollar increased 0.67 percent, at 111.58 yen.
The euro was up 0.14 percent against the yen, at 124.33 yen.
Positioning data showed net bullish bets on the euro reached their highest level in more than six years last week.
There was no discernible boost for the single currency from the landslide victory of French President Emmanuel Macron's government in parliamentary elections on Sunday.
Sterling declined 0.4 percent to $1.2732 as Britain began formal negotiations on its planned exit from the European Union. The UK ruling Conservative Party's loss of its parliament majority earlier this month raised speculation of a drift toward a "soft Brexit," which had supported the pound.
Many analysts, however, expect developments from the talks would hurt sterling.